Reg. § 31.3406(g)-2 Exception for reportable payment for which withholding is otherwise required.
(a) In general A payor of a reportable payment (as defined in section ) must not withhold under section if the payment is subject to withholding under any other provision of the Internal Revenue Code.
(b) Payment of wages A payor who is required to make an information return under section with respect to a payment of wages (as defined in section ) because, e.g., the employee makes a certification under section (relating to employees incurring no income tax liability), must not withhold under section on those wages.
(c) Distribution from a pension, annuity, or other plan of deferred compensation An amount reportable under section , such as a designated distribution under section , is not a reportable payment subject to withholding under section . See section . Designated distributions not subject to withholding under section include—
(1) Distributions from a pension, annuity, profit-sharing, stock bonus plan, or other plan deferring the receipt of compensation;
(2) Distributions from an individual retirement account or annuity;
(3) Distributions from an owner-employee plan; and
(4) Certain surrenders of life insurance contracts.
(d) Gambling winnings
(1) In general A payor of a reportable gambling winning must not withhold under section if tax is required to be withheld from the gambling winning under section (relating to the extension of withholding to certain gambling winnings). If the reportable gambling winning is not required to be withheld upon under section , withholding under section applies to the gambling winning if, and only if, the payee does not furnish a taxpayer identification number to the payor. does not apply to a reportable gambling winning. The payor of a reportable gambling winning is not required to aggregate all such winnings made to a payee during a calendar year, nor is the payor required to determine whether an information return was required to be made with respect to the payee for the preceding year.
(2) Definition of a reportable gambling winning and determination of amount subject to backup withholding For purposes of withholding under section , a reportable gambling winning is any gambling winning subject to information reporting under section . A gambling winning (other than a winning from bingo, keno, or slot machines) is a reportable gambling winning only if the amount paid with respect to the wager is $600 or more and if the proceeds are at least 300 times as large as the amount wagered. See to determine whether a winning from bingo, keno, or slot machines is a reportable gambling winning and thus subject to withholding under section . The amount of a reportable gambling winning is—
(i) The amount paid with respect to the amount of the wager reduced, at the option of the payer; by
(ii) The amount of the wager.
(3) Special rules For special rules for determining the amount of the wager in a wagering transaction with respect to horse racing, dog racing, and jai alai, or amounts paid with respect to identical wagers, see .
(e) Certain real estate transactions A real estate reporting person (the so-called broker) as defined in section must not withhold under section on a payment made with respect to a real estate transaction that is subject to reporting under sections (a) and (e) and . Notwithstanding the previous sentence, a real estate reporting person must withhold under section 3406 of the Code and pursuant to the rules under on a reportable payment made in a real estate transaction with respect to a purchaser that exchanges digital assets for real estate to the extent that the exchange is treated as a sale of digital assets subject to reporting under .
(f) Certain payments after an acquisition of accounts or instruments A payor who acquires pre-1984 accounts or instruments described in for which the payor does not have a taxpayer identification number or has an obviously incorrect taxpayer identification number as defined in must start withholding under section and on those accounts or instruments no later than sixty days following the date of the payor's acquisition of those accounts or instruments.
(g) Certain gross proceeds No withholding under section is required with respect to any portion of the original issue discount on an instrument or security that is subject to withholding under section as reportable gross proceeds of such instrument or security under section .
(h) Applicability date The rules apply to reportable gambling winnings paid with respect to a winning event that occurs after November 13, 2017. For rules that apply to payments made with respect to a winning event on or before that date, see as contained in 26 CFR part 31, revised April 1, 2017. For sales of digital assets, this section applies on or after January 1, 2026.
[T.D. 8637, 60 FR 66128, Dec. 21, 1995, as amended by T.D. 9524, 76 FR 26601, May 9, 2011; T.D. 9586, 77 FR 24611, Apr. 25, 2012; T.D. 9807, 81 FR 96380, Dec. 30, 2016; T.D. 9824, 82 FR 44929, Sept. 27, 2017; 89 FR 56583, July 9, 2024]